Bawang's management said it would take legal action against the Next Magazine for the report that Bawang's shampoo contains Dixoane, a chemcial that the magazine claimed might lead to skin cancer.

Bawang held a conference call with analysts before noon and clarified that Dixoane is an ingredient which is contained in almost all hair-care products and skin-care products. Dixoane comes from certain raw materials for making shamppo, and is usually unavoidabe. The key is how much Dixoane the shampoo products contain before it becomes unsafe.

According to international standard (FDA), below 20 ppm Dixoane for finished goods and below 100 ppm Dixoane for raw materials are safe. Bawang’s shampoo products contain less than 10 ppm of Dixoane, within the safety limit. Such low level of Dixoane content is unlikely to jeopardize users' health.

Management guided that prior to being exported from China, all products go through stringent quality tests and are approved by the Guangzhou Entry-exit Inspection and Quarantine Bureau. The products are complied with export standards and met with the quality and safety requirements in China and Hong Kong.  All products are manufactured strictly according to the existing standards in China, so products safety is guaranteed.

Bawang's share price fell by 14% at noon before the market closed. We think it is likely being over-sold on news that is possibly ungrounded. We believe the fundamental of the company is not going to change, as unlike the poison milk issue, Dixoane is not a forbidden material to be used, and FDA already approved the limit for its presence in both the raw and final shampoo and other skin-care products. We maintain our BUY call and TP of HK$ 7.51.